Itfollowsthattomaximizehisinefromlandsubjecttothelegalconstraintofrentalsharereduction,(a)theownercansuccessfullyinducethetenanttomitmorefarminginputsaslongasthetenantreceivesafarminginegreaterthanhisalternativeearning(sinceotherpotentialtenantswilloffertodoso);and(b)providedthatcondition(a)holds,thelandownerwillinducemoreintensivefarmingaslongasthemarginalreturntoadditionaltenantinputsisgreaterthanzero,fortherentalineundertheshareconstraintwillthenbehigherthanwithoutadditionaltenantinputs.Incondition(a),wehavethenon-landcostconstraint;in(b),wehavethelimitofthephysicalconstraint,namely,zeromarginalreturnsfortenantinputs.Themaximizationofrentalineforthelandownerwillbesubjecttowhicheverlimitesfirst.Theresultwillbeanincreaseinfarmingintensity,simplydefinedhereasanincreaseinf/h,theamountofnonlandfarminginputs(ornonlandfarmingcost,f)perlandarea.Theeconomicimplicationsofthisareimportant,andweshallanalyzethematsomelength.
Butfirstcertainassumptionsmustbespecified.(1)Aftertheimpositionof
,assumethatthereisnopensating(offsetting)paymentofanykind.Inotherwords,theowner'sinefromlandisconfinedstrictlyto
oftheannualyield.(2)Foranalyticalconvenience,assumethatallfarmingcostsotherthanlandarefinancedbythetenant.Therelaxationofthisassumptionwillnotaffecttheimpliedallocation.And(3),assumezerotransactioncosts.
A.PartialLandRepossession—IllustratedwithInputAdjustmentsforOneTenantFarm
Theincreaseoffarmingintensityundertheshareconstraintmaybeattainedintwogeneralways.Oneistoholdthetenantinputsconstant,whilepetitionallowsthelandownertoreducetenantlandholdingthroughpartialrepossessionofland.Anotherwayistokeepthetenantlandholdingunchanged,whilepetitioninducesmoretenantinputsoverthegivenland,whichisalsototheinterestofthelandowner.ofcourse,thelandownermaychooseabinationofboth.Inanyevent,theresultisanincreaseintenantinputsonlandintenantfarms.Thefirstisdiscussedinthissection;thesecondisdiscussedinsectionB.Botharedifferentviewsofthesamephenomenon.
Figure6involvesmanipulationsoffigure3inchapter2.Abriefreviewofitsnotationsisinorder.Thecurvef/hisarectangularhyperbola,representingthecontractuallystipulated(fixed)costoftenantinputs,f,dividedbythelandholding,h.Giventheaverageproductofland,
associatedwiththeconstanttenantinputs,therentperunitofland,(q-f)/h,isdefined.Theinitialtenantlandholdingisoa,where(q-f)/hisatamaximum,andtheopenmarketrentalpercentageequalsar/ap.
Undertheadditionalconstraintof
,however,the(q-f)/hcurveisnolongerrelevantfordecisionmaking.Insteadofmaximizingrentperacreofland,(q-f)/h,theownerwillnowmaximize(q/h)
subjecttotheconstraintoff/h.Toillustrate,supposetheinitialrentalpercentageof70percent(ar/ap)islegallyreducedto
of40percent.Thelandowner'sshareconstraintisthusrepresentedbythecurve
,whichisat40percentoftheaverageproductofland.Thiswillbethecaseaslongastherentisreducedandstatedaccordingtopercentage,regardlessofwhethertheinitialcontractisforfixedorsharerent.[1]Thecorrespondingshareforthetenantwillbe.
Withoutresourcereallocation,therentperunitoflandwillnowbeaeinsteadofar,andthetenant'sinewillbeattimesoa,whichishigherthanhisalternativeearning.Tomaximize(q/h)
,thelandownercanreducethetenant'slandholdingtoobwithoutreducingtenantinputs,subjecttothenonlandcostconstraint,f/h.Givenf/hasshown,petitiveequilibriumisreachedatpointh,wherethetenantinefromfarmingequalsthetenant(nonland)cost.Therentperunitoflandforthelandownerwillnowbebg,whichishigherthanae.Toutilizethewithdrawnland,thelandownercanparcelittoothertenantsinasimilarmanner,cultivateithimself,orhirelaborerstotillit(thislastpossibilitywasrestrictedinTaiwan).Theresult,underthestrictlyenforcedshareconstraint,isaresourcereallocationtoahigherf/hratiointenantfarms,oranincreaseintenantfarmingintensityoverthatinanunrestrainedmarket.
Theeconomicimplicationsofincreasingf/hareseveral.Letusassumethatthereareonlytwofactorsofproduction,land,h,andtenantlabor,t.Underthisassumption,totalnonlandfarmingcost,f,istheprevailingwage,W,timest.Thus,givenW,anincreaseinf/hmeansanincreaseint/h.AttheinitiallandsizedivisionT1,themarginalproductofland,
,isar.Withthehighert/hratioassociatedwithlandholdingobaftertheadjustment,themarginalproductoflandbeeshigher.Thismeansthatthemarginalproductoflandwouldbehigherinadjustedtenantfarmsthaninownerfarms.Ontheotherhand,themarginalproductoftenantinputwillbelowerthaninotheroccupations.Inotherwords,themarginalcostoftenantinputishigherthanitsmarginalproduct.Thus,nonlandinputsinvestedintenantfarmsasaresultofthesharerestrictionwillyieldreturnsataratelessthantheinterstrate.
Twosideremarkscanbemade.First,ifthetenantwagerateislowenoughtoformf*/h(dottedlineinfig.6),andgiventheconstraintsandassumptionsspecified,petitiveequilibriumbeesundefined.Inthiscase,thelandownerwillreducelandsizetooc,where(q/h)
isatamaximumandwherethemarginalproductoftenantlabor(the"other"factor)willbezero.[2]Thetenantwillthenbereceivingaresidualine(whichequalsijtimesoc),anamountwhichthelandownercouldextractinalumpsum(apensatingpaymentwhichweassumeaway).